As a follower of Warren Buffett, I learned about Berkshire Hathaway’s (BRK-A) acquisition of Burlington Northern Santa Fe (BNI) early yesterday morning. Most value investors probably were interested in learning more about how Mr. Buffett valued BNI. What is the intrinsic value of BNI? What kind of margin of safety did Buffett’s $100 per share offer represent? Was Warren Buffett revealing anything about the value of Berkshire Hathaway shares by offering Burlington Northern shareholders the option of $100 in cash or Berkshire Hathaway shares?
However, the first thing I thought of was would this potentially present a fat pitch special situation opportunity. Warren Buffett always keeps his word on merger deals. Could the Burlington Northern offer create another Constellation Energy Group (CEG) opportunity?
As you might recall, last year I made some significant profits from the Constellation Energy Group merger arbitrage. Berkshire Hathaway’s MidAmerican Energy Holdings offered $26.50 per share in cash for Constellation Energy. After the deal was announced, the price of CEG shares drift down to as low as $15 and then up to $30 last year. Mr. Market sure got moody, even with Mr. Buffett at the helm of that deal. Could the same thing happen again with BNI?
I decided to ask my Twitter followers. Here’s my question and their responses:
FatPitch: I’m hoping $BNI will dip down to $90 in the coming weeks. Do you think it will happen? Lower?
rationalwalk: @FatPitch Can’t see BNI slipping to $90…. would require crash in BRK shares well below $80K to do that. Very, very unlikely.
marketfolly: @FatPitch could happen if market dives as many predict. at same time, few merger/arb plays out there right now; funds swarm to same plays
ModernGraham: @FatPitch If it does, it would be Mr. Market at his finest – there’s no reason for it to be anything but $100 now
MrMarketBlog: @FatPitch I doubt it. I don’t think anyone is going to doubt Warren getting this deal done
vlad0: don’t underestimate irrationality
What are your thoughts on the potential for arbitrage profits with the Burlington Northern Santa Fe deal? Share them in the comments section below or follow me on Twitter.